SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1997
Commission File No. 0-16056
TRUDY CORPORATION
353 MAIN AVENUE
NORWALK, CONN. 06851
Incorporated in the State of DELAWARE
Federal Identification No. 06-1007765
Telephone: (203) 846-2274
Trudy Corporation has filed reports required to be filed by section 13 or 15 (d)
of the Securities Act of 1934 during the preceding twelve months and has been
subject to such filing requirements for the past year.
SHARES OUTSTANDING AT
September 30, 1997
Common Stock, $.0001 par value 324,457,249 shares
TRUDY CORPORATION
INDEX PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Unaudited Balance Sheets - June 30, and
September 30, 1997 ............................................... 2
Unaudited Statements of Operations - Three months ended and six
months ended September 30, 1996 and September 30, 1997 .......... 3
Unaudited Statements of Cash Flows - Three months ended
September 30, 1996 and September 30, 1997 ........................ 4
Note to Unaudited Financial Statements ............................... 5
Management's Discussion and Analysis ................................ 6,7
PART II. OTHER INFORMATION ........................................... 7
SIGNATURES ............................................................. 8
TRUDY CORPORATION
BALANCE SHEET - UNAUDITED
Sept 30 June 30
1997 1997
ASSETS (unaudited) (unaudited)
----------- -----------
Current assets:
Cash $ 20,556 $ 231
Accounts receivable, net
(June 30, 56,267; Sept 30, 62,639) 1,247,460 397,448
Inventories 1,886,864 1,550,387
Prepaid expenses 426,937 110,767
Deferred income taxes 40,000 40,000
----------- -----------
Total current assets 3,621,816 2,098,833
----------- -----------
Net property, plant and equipment 77,527 69,899
Other assets:
Deferred income taxes 216,000 216,000
Pre-publication expenses 391,280 391,123
----------- -----------
Total Assets $ 4,306,623 $ 2,775,855
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Note payable 1,390,373 671,979
Current portion of notes to related parties 375,990 362,443
Current portion of long-term debt 11,369 13,000
Accounts payable & accrued expenses 897,133 372,018
----------- -----------
Total current liabilities 2,674,865 1,419,440
Notes payable to related parties 156,210 153,676
Long-term debt, net of current portion 49,463 25,313
----------- -----------
Total liabilities 2,880,538 1,598,429
----------- -----------
Stockholders' equity:
Common stock, par value $.0001;
850,000,000 shares authorized;
324,457,249 shares issued and outstanding 32,446 32,446
Capital in excess of par value 3,993,698 3,993,698
Deficit (2,600,059) (2,848,718)
----------- -----------
Total stockholders' equity 1,426,085 1,177,426
----------- -----------
Total liabilities and stockholders' equity $ 4,306,623 $ 2,775,855
=========== ===========
SEE NOTES TO FINANCIAL STATEMENTS
2
TRUDY CORPORATION
STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
------------------------------ ------------------------------
September 30 September 30 September 30 September 30
1997 1996 1997 1996
------------- ------------- ------------- -------------
Net sales $ 1,581,553 $ 1,180,598 $ 2,257,408 $ 2,171,306
------------- ------------- ------------- -------------
Operating costs and expenses:
Cost of sales 849,077 658,797 1,245,363 1,115,414
Selling, general and administrative 451,585 438,575 819,350 789,622
------------- ------------- ------------- -------------
1,300,662 1,097,372 2,064,713 1,905,035
------------- ------------- ------------- -------------
Profit from operations 280,891 83,226 192,695 266,271
------------- ------------- ------------- -------------
Other income (expense):
Interest expense (25,182) (9,858) (38,125) (5,191)
Other income 1,440 934 10,084 1,022
Other expense (depreciation) (2,832) (3,948) (5,639) (9,897)
Relocation expenses 0 (68,888) 0 (116,116)
------------- ------------- ------------- -------------
(26,574) (81,760) (33,680) (130,182)
Profit before tax 254,317 1,466 159,015 136,089
Provision for income tax 5,658 0 5,658 0
Net profit (loss) $ 248,659 $ 1,466 $ 153,357 $ 136,089
Deficit - beginning of period (2,848,718) (2,970,470) (2,753,416) (3,105,093)
------------- ------------- ------------- -------------
Deficit - end of period (2,600,059) (2,969,004) (2,600,059) (2,969,004)
============= ============= ============= =============
Net profit/(loss) per share $ .000766 $ 0.000005 $ 0.000473 $ 0.000427
============= ============= ============= =============
Weighted average number of
shares outstanding 324,457,249 318,457,249 324,457,249 318,457,249
============= ============= ============= =============
SEE NOTES TO FINANCIAL STATEMENTS
3
TRUDY CORPORATION
STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months ended Sept. 30
--------------------------------
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Profit $ 153,357 $ 136,089
----------- -----------
Adjustments to reconcile net profit to net
cash used in operating activities:
Depreciation and amortization 15,025 9,897
Provision for losses on accounts receivable 7,639 10,712
Changes in assets and liabilities:
Accounts receivable (1,081,402) 154,799
Inventories (482,274) (129,164)
Prepaid expenses and other current assets (357,447) (77,833)
Accounts payable and accrued expenses 529,085 (361,644)
----------- -----------
Net cash (used)/provided in operating activities (1,216,017) (257,144)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Pre-publication and royalty advances (49,507) (7,898)
Dispositions/(additions) to property, plant & equipment (17,602) 119,064
----------- -----------
Net cash provided by (used in) investing activities (67,109) 111,166
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from loans - short term 1,275,377 106,649
Proceeds/(payment) of long term debt 25,365 (7,222)
----------- -----------
Net cash provided by financing activities 1,300,742 99,427
----------- -----------
Net increase (decrease) in cash 17,616 (46,551)
Cash, beginning of period 2,939 145,202
----------- -----------
Cash, end of period $ 20,555 $ 98,651
=========== ===========
SEE NOTES TO FINANCIAL STATEMENTS
4
TRUDY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three months ended September 30, 1997 are
not necessarily indicative of the results that may be expected for the year
ending March 31, 1998. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on Form
10-KSB for the year ended March 31, 1997.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
REVENUES
Trudy Corporation's revenues for the first six months of Fiscal 1998 increased
4.0% to $ 2,257,408 compared to revenues of $ 2,171,306 in the first six months
of Fiscal 1997. This increase in revenues is attributable to a broad based
increase in sales through all channels, as well as the impact of mailing the
mail order catalog roughly three weeks earlier this year. Sales for the second
quarter were up by 34.0% to $1,581,553 compared to sales of $1,180,598 in the
previous fiscal year. The dramatic sales growth is largely the result of timing
issues, such that one customer ordered product later in the season than in prior
years, thereby expanding second quarter sales at the expense of first quarter
sales.
The order backlog totaled $ 1,041,979 on September 30, 1997, up by 3.1% compared
to last year's backlog of $ 1,010,700 as of September 30, 1996. This increase in
order backlog is not statistically significant and is attributable to an
increased order commitment by one major customer as well as a broader acceptance
of the Company's new publications by a diverse selection of retailers. The
entirety of this backlog was shipped in October and November.
PROFIT AND LOSSES
The net profit of $ 248,659 for the second quarter of Fiscal 1998 compares with
the net profits of $ 1,466 for the Second Quarter of Fiscal 1997. Overhead costs
are virtually unchanged from the prior year, whereas sales increased
dramatically during the three months. Additionally, real estate taxes fell due
to concessions negotiated with the City of Norwalk.
For the six months ending September 30, 1997, the net profit was $ 153,357 in
contrast to the six month profit of $136,089 in the previous year. In the prior
year, both quarters were burdened with significant relocation expenses which
were non-recurring. The cost of sales rose during the six months, partly due to
lower margins for certain sales, higher labor costs, and higher amortization of
mail order catalog costs due to an earlier mailing versus a year ago.
Cost of Sales decreased to a level of 53.7% in the second quarter compared to
55.8% for the second quarter of fiscal 1997. For the six month period, cost of
sales were 55.2% in FY98 compared with last year when they were 51.4%.
The Profit from Operations for the second quarter totaled $ 280,891, up
significantly from a profit of $ 83,226 in the quarter ending September 30,
1996. Sales rose $ 401,000 (or 34%) over the prior year while cost of sales
increased only $190,000 (or 28.9%). Operating profits for the first six months
of Fiscal 1998 totaled $ 192,695, down by 27.6% when compared to the profit of $
6
266,270 in the prior fiscal year. Operating profit margins were 17.8% and 8.5%
respectively for the latest three and six month periods of the current fiscal
year; in the prior year the net margins were 7.0% and 12.3% respectively.
Interest expense is up over prior year levels as the Company borrowed larger
amounts of working capital under the line earlier in the season. The earlier
borrowings were necessitated by the need to stock product in advance of shipping
a large customer order which had an earlier shipping date. Depreciation expense
is down in FY98 as the Company continues to dispose of its manufacturing
equipment and as a result of the move to a new warehouse/office location.
LIQUIDITY AND CAPITAL RESOURCES
Both inventory and accounts receivable were up substantially from their levels a
year ago, and inventories stood at $1,886,864 at Sept 30, 1997 compared with
$1,550,387 on June 30, 1997. This 21.7% increase is the result of having to
stock merchandise for growing retail sales in the Fall. Accounts receivable was
up three fold from June with $ 1,247,460 outstanding at Sept 30, 1997.
Management continues to be satisfied with inventory levels and with the quality
of the accounts receivable.
The Company has financed its growth more recently by increased reliance on its
bank loan such that outstandings totaled $ 1,390,373 at Sept 30, 1997 compared
with $671,979 in June of last year.
PART II
OTHER INFORMATION
Items 1-6. Not Applicable.
7
SIGNATURES
As required by Section 13 or 15(d) of the Securities Exchange Act of 1934, the
President being duly authorized, has signed this report on behalf of TRUDY
CORPORATION.
Date FEBRUARY 11, 1998 By /s/ WILLIAM W. BURNHAM
----------------------------
William W. Burnham,
President
8